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Operating profit
(2008: $123m)

$2m

Share of Group operating
profit
(2008: 1%)

0.04%

EBITDA
(2008: $150m)

$28m

The Barro Alto project in Brazil was nearly 80% complete at the year end and is on schedule.

Nickel Map

Nickel

$ million (unless otherwise stated) 2009 2008
     
Operating profit 2 123
EBITDA 28 150
Net operating assets 1,787 1,401
Capital expenditure 554 530
     
Share of Group operating profit 0.04% 1%
Share of Group net operating assets 5% 4%

Nickel comprises two ferronickel operations: Codemin in Brazil and Loma de Níquel in Venezuela as well as the world class Barro Alto ferronickel project in Brazil. In addition, within the business unit's portfolio, there are two promising projects, both in Brazil, at the unapproved stage: Jacaré and Morro Sem Bone. These have the potential to significantly strengthen Anglo American's position in the worldwide nickel market, adding at least 66 ktpa to the Group's present annual total nickel production (including Anglo Platinum's nickel output) of 39.4 kt.

Nickel is the fifth most common element found on earth. It is found in about 20 countries, with known reserves estimated to last around 100 years at the present mining rate. The metal occurs as two main deposits: sulphides that are found underground, and laterites that can be mined by open pit methods.

Nickel is a hard, ductile metal with high resistance to corrosion and oxidation. Nickel's main use is as an alloying metal, along with chromium and other metals, in the production of stainless and heat resisting steel. About 60% of nickel is used to manufacture stainless steel and 25% in other steel and non-ferrous alloys. In a more recent development, the Chinese stainless steel industry, which has been absorbing growing volumes of nickel pig iron (NPI), is looking to a potential annual offtake of 100 kt of nickel in NPI form. Primary nickel is used in the form of pure nickel metal, ferronickel, nickel oxide and other chemicals. Nickel is also recycled in many of its applications and large volumes of scrap nickel are used to supply the steel industry.

Over the past decade, nickel usage has grown as developing nations have increased the pace of their industrialisation and urbanisation programmes. Demand has risen from about 1.1 Mt in 1999 to about 1.3 Mt in 2009, a compound average growth rate of 2% per annum.

This growth, however, has not been uniform, with short-lived peaks typically being followed by extended periods of relative weakness. The nickel market experienced its highest offtake in recent years in 2006 when demand reached in the order of 1.4 Mt; thereafter, demand declined every year up to and including 2009 when it was an estimated 1.3 Mt. A recovery in the nickel market is expected in 2010 and forecasts are that consumption could reach approximately 1.4 Mt.

On the production side, primary refined nickel output in recent years has been broadly in line with the strong growth of the world economy, with around 1.4 Mt of the metal being produced in 2007. The economic crisis in 2008 led to a production decline to just below 1.4 Mt, with output falling further in 2009 to an estimated 1.3 Mt.

In spite of the overall fall in world production in 2009, China, Norway and the European Union achieved modest increases in output, though declines were experienced in Russia, Australia and New Caledonia.

The supply/demand balance has been affected by the very high levels of Chinese imports during the year and also by strikes at Vale-Inco in Canada. Despite continuing strike action, demand from the stainless steel sector has started to weaken and London Metal Exchange (LME) stocks had risen significantly to a forecast level of around nine weeks' consumption by the end of 2009.

Nickel's strategy is in line with the Group's overall strategy of finding or acquiring, developing and operating world class, low cost mines in a socially and environmentally responsible manner, with an increasing focus on safety and asset optimisation.

Although prone to its own price volatility and metal cycle movements generally, nickel's medium and long term demand fundamentals are being driven by the ongoing development of the so-called BRIC nations (Brazil, Russia, India and China).

The restructuring of the Anglo American Group has brought with it the opportunity to have a new management team dedicated to the nickel business. With this team now in place, there is a sharpened focus on optimisation initiatives at the operations as well as on the successful execution of the Barro Alto project. Beyond Barro Alto, the business unit has significant optionality to develop the Jacaré and Morro Sem Bone projects, which would make Anglo American a growing player in the nickel market and one that is well positioned on the lower half of the industry cost curve.

Nickel generated an operating profit of $2 million, strongly impacted by the 30% decrease in average nickel prices for the year and Venezuelan inflation of approximately 25%. Sales volumes of 23,635 tonnes were 32% higher, mainly due to the drawing down of stockpiles at Loma de Níquel and Codemin following the weakening in the nickel market in the fourth quarter of 2008.

Markets

Average market price (c/lb) 2009 2008
Nickel 667 953

Nickel demand increased during the second half of the year, mainly due to higher Chinese stainless steel output and imports, after being negatively affected in the first half by price-led substitution, destocking in the stainless steel sector and weak global economic conditions. The nickel price reached a low of 427 c/lb during March, increased to 956 c/lb in August and ended the year at 838 c/lb.

Operating performance

Attributable production (tonnes)(1) 2009 2008
Nickel 19,900 20,000

(1) Excludes Anglo Platinum nickel production.

Nickel production decreased marginally to 19,900 tonnes owing to lower production at Loma de Níquel, partially offset by higher production at Codemin.

Loma de Níquel produced 10,400 tonnes of nickel, a decrease of 5%. Production was impacted in January by the non-renewal of the environmental permit to dispose of slag from the smelting process while studies were finalised to find disposal alternatives, an estimated impact of 1,100 tonnes. In May, a metal run-out from the EF2 furnace resulted in its closure for the rest of the year, with a loss of approximately 4,500 tonnes of production during 2009. Reconstruction of the furnace was completed in January 2010 and full production is expected during the second quarter. While only 50% of smelting capacity was available between June and December, production achieved 59% of budget through optimisation of the remaining plant processes.

Operating costs were kept under tight control despite Venezuelan inflation and the artificially pegged exchange rate. Port congestion difficulties faced in the first half were overcome through the use of an alternative port and shipping route.

In January 2008, the Venezuelan Ministry of Basic Industries and Mining (MIBAM) published a resolution cancelling 13 of Minera Loma de Níquel's (MLdN) 16 exploration and exploitation concessions due to MLdN's alleged failure to fulfil certain conditions of the concessions. The current mining and metallurgical facilities are located on the three concessions that have not been cancelled. MLdN believes that it has complied with the conditions of these concessions and has lodged administrative appeals against the notices of termination and is waiting for a response from MIBAM. MLdN may in the future undertake further appeals, including with Venezuela's Supreme Court, if the MIBAM's ruling does not adequately protect its interests.

An impairment and associated adjustments of $114 million have been recorded due to increased uncertainty over the renewal of the three concessions that have not been cancelled but that expire in 2012 and over the restoration of the 13 concessions that were cancelled.

At 31 December 2009, Anglo American's interest in the book value of MLdN, including its mineral rights, was $285 million (as included in the Group's balance sheet). In the 12 months to December 2009, MLdN's production and contribution to Group operating profits were respectively 10,400 tonnes of nickel in ferronickel and a $7 million loss. The average price of nickel in 2009 was 667 c/lb. As of 17 February 2010, the price of nickel was 910 c/lb.

Codemin's production increased by 4% to 9,500 tonnes, primarily as a result of improved equipment availability. Cash operating costs were reduced by 11%, aided by higher production and lower fuel oil prices.

Projects

The Barro Alto project was nearly 80% complete at the year end and is on schedule towards producing its first metal in early 2011 and full production in the second half of 2012. This project makes use of an existing operation and proven technology and will produce an average 36 ktpa of nickel in full production (41 ktpa over the first five years), with a cost position in the lower half of the curve. Further asset optimisation initiatives are under way which are expected to improve its cost positioning further. When Barro Alto reaches full production in 2012, Anglo American's nickel production (excluding nickel production from Anglo Platinum) will reach 61 ktpa, while additional potentially world class projects in the pipeline could increase production to 120 ktpa, with further upside potential, leveraging the Group's considerable nickel laterite technical expertise. Barro Alto has an approved life of mine of more than 25 years from its extensive resource base.

The unapproved Jacaré and Morro Sem Bone projects submitted their PAE (Economic Exploitation Plan) to the Brazilian mining authorities during 2009.

Outlook

In 2010, Loma de Níquel's production is expected to substantially increase following the start-up of the rebuilt EF2 furnace and the implementation of various process improvements. Production at Codemin is expected to decrease to approximately 8,400 tonnes (12%) due to its planned furnace relining.

The long term outlook for nickel is for robust growth, underpinned by stainless steel uses for applications where corrosion resistance, hygiene and strength are required, such as in the automotive and construction industries, nickel alloys for the energy and electronic (batteries) sectors and the broader industrialisation of the emerging economies, led by China.


Global Primary Nickel Consumption

Global nickel refinery production capability
Construction work on the ferronickel plant at the Barro Alto project.

Metal pour in the ferronickel smelter at Codemin, which produced 9,500 tonnes of nickel in 2009.

Metal pour in the ferronickel smelter at Codemin

Construction work on the ferronickel plant at the Barro Alto project, which is due to produce its first metal in 2011, ramping up to an annual production of 41 kt over the first five years of a forecast 25 year life.

Walter De Simoni
CEO Nickel

Walter De Simoni Group potential nickel production

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Annual Report 2009